The Consumer Is Running Scared

Quick, someone declare an emergency Christmas!

The consumer is running scared. That's the best way I can sum up that monstrosity of a retail sales report released yesterday.

Duck and cover
Thomson Reuters, which tracks monthly same-store sales figures for 18 retailers, reported that June same-store sales, including drugstore sales, rose just 0.1% -- their worst showing since August 2009. Excluding drugstores like Walgreen and Rite-Aid (NYS: RAD) , which saw same-store sales decline 10% and 1% because of consumers who chose lower-margin generic drugs and, in Walgreen's case, a falling out with Express Scripts, June same-store sales rose at a modest 2.5% pace, compared with the 7.7% rate last year.

It was a disaster of monumental proportions, with roughly two-thirds of retailers missing expectations. From the looks of these results, it appears middle-class consumers are ready to join high-end consumers in tightening their spending:


Consensus June Same-Store Sales

Actual June SSS

Limited Brands (NYS: LTD)



Nordstrom (NYS: JWN)






Ross Stores






Stage Stores












Wet Seal



Costco (NAS: COST)












Macy's (NYS: M)



Stein Mart



Sources: Thomson Reuters, individual press releases.

Out of the 16 apparel retailers, just six managed to beat expectations.

The good
A few of those came as no surprise. TJX and Ross Stores have been frequent visitors to the same-store toppers list as cost-conscious consumers look for in-demand designer names at bargain prices. Perhaps Limited Brands deserves mention here as subsidiary chain Victoria's Secret logged its 30th consecutive month of 7% or greater same-store sales growth.

The bad
Despite these highlights, the landscape is littered with middle-class-focused retailers that missed expectations. Macy's blamed lower spending from tourists in New York and other major cities, as well as remodels, for the bulk of its miss, although it continues to stand by its sales and earnings forecast for the full year. Middle-class staple-bulk supplier Costco also failed to meet Wall Street's target as negative overseas exchange rates and falling fuel prices took their toll. Even Target, which you'd instinctively think would do well since it caters to deal-hungry customers, is struggling to gain its footing.

The downright confusing
Nordstrom might present the most confusing case of all. Recent data would suggest that high-end retailers are beginning to feel pressure. Luxury jewelry retailer Tiffany has lowered earnings expectations more than once in the past year, and Citigroup just last week lowered its expectations on Saks, Macy's, and Tiffany because of high-end spending concerns. Nordstrom appears to have escaped the high-end curse for now by reporting an 8.1% rise in June same-store sales, but its dominance may be short-lived given the middle-class domino effect we're witnessing.

If you recall, I warned in May that a combination of lofty expectations and warm weather had boosted retail sales earlier in the year to artificial and unsustainable highs. Now we're beginning to see just how weak the retail spending environment actually is once those artificial factors are removed.

If the jobs reports' weakness is any indication of what's been happening in the retail sector, I'd venture a guess to say that July's figures could even be worse than June's. Now, I'll watch and wait to see if the consumer continues to tighten his or her wallet even further.

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At the time thisarticle was published Fool contributorSean Williamshas no material interest in any of the companies mentioned in this article. Malls are kryptonite to his wallet. You can follow him on Motley Fool CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of Costco, Tiffany, Buckle, and Citigroup.Motley Fool newsletter serviceshave recommended buying shares of Costco and Zumiez, as well as shorting shares of Tiffany. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policythat'll never leave you high and dry.

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